In his Budget speech, the Chancellor said the bank levy, which is charged on banks’ balance sheets, would be reduced gradually between 2016 and 2021 from 0.21% to 0.1%.

Osborne said the levy was originally introduced to increase the stability of balance sheets, and had been successful, but raised concerns that it posed a threat unless interventions were introduced.

In order to ensure a “fair contribution” from the banking sector, Osborne said an 8% tax on profits would apply to institutions from January 2016.

UK banks’ overseas subsidiaries will be excluded from the bank levy from January 2021.

“By getting this balance right, it means we’ll actually raise more from the banks this parliament, but at the same time make our country a more competitive place to do business,” Osborne said.

Osborne said the government would also be conducting a major review of the regulation of claims management companies and capping the charges that can be applied to customers.